Covid-19: Gold loan providers to resume operations of 90% of their branches

With the Ministry of Home Affairs (MHA) order allowing non-banking financial companies (NBFCs) to resume operations on Monday, Kerala-based non-banking financial companies (NBFCs), which provide loans against gold, are planning to start the operations of 90 per cent of their branches. Despite the impact of the coronavirus outbreak, they expect growth of nearly 10-15 per cent.

These companies are prepared to lend more to customers as the price of gold mortgaged by them has gone up sharply, making them eligible for larger loans. These companies are also looking at giving moratorium to existing customers.

Mannapuram Finance, Muthoot Pappachan Group and Muthoot Finance said that their prime consideration would be strict adherence to the stipulated guidelines, prescribed safety standards of the employees and customers and also security of the assets in the branchs.

Commenting on the demand scenario, Thomas John Muthoot, CMD, Muthoot Pappachan Group, said, "There had been good demand for small loans even before the lockdown, and there would be requirement of credit post lockdown to resume many closed businesses." Muthoot Pappachan Group plans to resume operations of 90 per cent of its 4,200 branches.

Muthoot added that the sudden lockdown had disrupted economic activitiesn and to restart many of them, people would need investment and since the unsecured loan market would take some time to resume, he expected a good demand for secured loans.
 

Agrees, K  R Bijimon, CGM, Muthoot Finance, which will open 90 per cent of its 5,000 branches (including 500 MFIs), said that with the rise in gold prices, the company which has around Rs 40,000 crore on its books, was expecting to grow around 10-15 per cent.

The average price of gold, when it was mortgaged with these companies was much lower and now prices are above Rs 45,000 per 10 gram. Many customers, especially those with limited means, are badly in need of cash after nearly a month of lockdown and little or no income. All of them are expected to take higher loans against the gold, which they had earlier mortgaged. New customers are also expected.

V P Nandakumar, MD & CEO, Manappuram Finance said that his company would resume operations at a moderate level, with fewer customers walking in initially. However, many of the existing customers are using digital modes to transact, he noted.

Speaking on the challenges before the company, Nandakumar said that while he did not expect a significant rise in the default rate after the end of the moratorium period, the main challenge would be liquidity, because while his company was offering a moratorium to most of its customers, the same was not being extended to the company by its lenders.

Meanwhile, Bijimon added that nearly Rs 100 trillion worth of gold was lying as an asset with households and government needed to look at leveraging that gold for bringing it into mainstream economy. Underlining that there were about 10 million customers with Muthoot, with an average ticket size of around Rs 50,000, he said that the government needed to be more liberal towards gold loan NBFCs, make funding available to them and bring them under the priority sector.